Payroll in Portugal
Capital
Lisbon
Official Language
Portuguese
Currency
Euro
Payroll cycle
Bi-weekly
Quick facts about Portugal
Bordered by Spain and the Atlantic Ocean, Portugal is quickly becoming one of Europe’s most important hubs for startups and tech. With an economy that keeps growing, Portugal is a popular destination for digital nomads and workers at major tech companies, including Microsoft, Amazon, and Google.
What is payroll in Portugal?
Running payroll in Portugal means managing onboarding, termination, severance, payments, benefits, vacation, payroll deductions, maintaining compliance, and taxes for full-time employees.
Companies can partner with a PEO if they already have an entity set up or use an EOR service like Via and skip the process of opening an entity.
In recent years, Portugal has made a commitment to growing their economy after a large recession. This growth mainly focuses on foreign investors, so they make the process of setting up payroll simpler than other countries in Europe.
However, the process still requires you to have extensive knowledge of Portuguese tax and employment laws, as well as time and investment capital to set up a subsidiary or entity and establish a strong HR team within the country.
This article gives employers everything they need to know about paying their workforce, and gives employees an overview of how payroll is run in Portugal.
What is the minimum wage in Portugal?
The monthly minimum wage in Portugal is 822.5 EUR. However, the monthly minimum wage is significantly lower than the average living wage, which is around 1,200 EUR.
How to setup payroll in Portugal
To set up payroll in Portugal, there are quite a few steps that you as an employer must follow in order to remain compliant with tax laws. These steps include:
Establish a subsidiary or entity
Register with the specific county’s tax authority
Register with Social Security
Establish a power of attorney
Set up an in-country bank account to pay employees
This process can take up to 30 days after you establish a subsidiary, so having the time and resources to set up and pay your employees in compliance with Portuguese employment laws is crucial.
Payroll Taxes in Portugal
Pay cycle
Portuguese employees are usually paid bi-weekly, through a check, money order, or direct deposit. The payroll must be issued on a working day and the employer must provide the employee with a paystub.
Payroll contributions
Employers and employees both contribute to the country's social security. Employees must contribute a flat 11% of their salary each month to social security to receive their employee benefits, while employers contribute 23.75% each month to social security. In Portugal, there is a progressive tax scheme where employee’s taxes are increased based on their salary.
Employer payroll contributions:
23.75: Social security
1.75%: Labour Accident Insurance
1%: Wage guarantee fund
Total employment cost: 26.5%
Employee payroll contributions
11%: Social security
Total employment cost: 11%
Corporate taxes
Employers in Portugal pay several corporate taxes, which break down as follows:
Corporate tax: 21%
State surcharge tax: 3%-7%
Municipal surcharge: up to 1.5% depending on the municipality of business
Combined tax rates: 31.5% maximum
Unemployment
There are two separate unemployment taxes that employers pay into in Portugal:
Fundo de Compensacão do Trabalho (FCT): 0.925%
Fundo de Garantia de Compensacão do Trabalho (FCGT): .075%
Both of these amounts are calculated based on the employee's base salary.
VAT
For the value added tax, the standard rate throughout the country is 23%. However, there are two regions where the value added tax rate is lower. In the autonomous region of Azores the VAT is 18%, and in the autonomous religion of Madeira the VAT is 22%.
Income tax
The withholding tax rate in Portugal for income is a flat rate of 25%. However, because of the progressive tax scheme, employees' income withholding tax rate may increase, depending on their base monthly salary.
Gross Income | Tax Percentage |
|---|---|
Up to $7,116 EUR | 14.5% |
$7,116 EUR to $10,736 EUR | 23%: |
$10,736 EUR to $15,216 EUR | 26.5% |
$15,216 EUR to $19,696 EUR | 28.5% |
$19,696 EUR to $25,076 EUR | 35% |
$25,076 EUR to $36,757 EUR | 37% |
$36,757 EUR to $48,033 EUR | 43.5% |
$48,033 EUR to $75,009 EUR | 45% |
$75,009 EUR and above | 48% |
13th-month salary
It is mandatory to pay employees a 13th and 14th-month salary in Portugal. These payments are made in June for holidays and in December for Christmas.
Working hours
The standard working hours in Portugal are Monday-Friday, 8 hour days, 40 hours per week.
These numbers can change based on agreements made in the employment contracts.
Overtime
All work over 40 hours is required to be paid at an overtime rate.
Standard overtime rates are 2 hours per day for a maximum of 48 hours in 1 week, and annually 150 hours per year for companies with more than 50 employees, or 175 hours per year for companies with more than 75 employees.
Overtime payments are paid at 125% the usual salary rate for the first hour of work. After the first hour, the rate increases to 137.5% for any subsequent hours.
Any overtime on rest days or holidays is paid at 1.5x the employee's salary rate.
Paid time off
All employees with 1 year of service to a company are entitled to 22 days of paid time off per year. All paid time off request must be applied for and approved by the employer. Leave can be carried over into the next year as long as it's used by the 30th of April.
Before the 1st year of service mark, employees are entitled to 20 days of leave, accumulated as 2 days per month.
Portugal has 13 mandatory public holidays employees are entitled to have off.
Sick days
Employees must prove that they are sick by a medical doctor to receive benefits for their sick days. They must have completed 6 months of employment.
Daily benefit is calculated by applying a percentage of the employee's reference renumeration:
Up to 30 days: The employee is entitled to 55% of the reference renumeration
31-90 days: The employee is entitled to 60% of the reference renumeration
91-365 days: The employee is entitled to 70% of the reference renumeration
Anything over 365: The employee is entitled to 75% of the reference renumeration
Maternity leave
Expecting mothers are entitled to 120 days of paid time off at 100% of their regular salary. This paid time off comes directly for Portugal's social security system.
Employees must have been employed for 80 days in the proceeding 12 months before the expected due date.
Parental leave
Parental leave can be shared between both parents. In these cases, the parental leave is 180 days at 83% of the employee's salary.
Portugal payroll deduction calculator
An employee’s income tax rate is based on their monthly salary and can easily be calculated using a deduction calculator. One can be found here.
Tax year
The fiscal year in Portugal is from the 1st of January to the 31st of December.
Options for setting up payroll in Portugal internally vs. externally
In Portugal, there are 5 main options that you can choose from to set up and run payroll in the country:
Remote payroll is one of the easier options. You still need to establish an internal subsidiary. A larger parent company can choose to run payroll in Portugal for the parent company. However, your Portuguese business will still need to comply with local laws.
Internal payroll is a good option for businesses who want to build out a strong presence in the country. You should have the resources to directly manage the subsidiary. However, this option is expensive, since you will need to hire and train a strong HR team.
Payroll processing companies are another option. This path has benefits, but the outsourced company only handles payroll and the parent company still accepts all liability.
PEO services handle compliance with the onboarding and hiring process, but do not shoulder as much legal liability in the case of mismanagement. This is a co-employment model, so your company will still need to open an entity in the country.
Finally, you can hire employees using a global EOR service like Via. Employer-of-record services handle all of the legal and hiring compliance and take on the legal responsibilities associated with paying and hiring compliantly in Portugal. Via owns its entities and takes on all of the HR responsibilities and global employment processes.
Why Portuguese companies partner with Via to run payroll
Both large and small companies want to hire employees in Portugal, but are unsure of how to navigate the country’s payroll and labor laws. Via makes hiring Portuguese talent and building your global team seamless. Our easy-to-use platform helps you manage the local HR processes for benefits, payroll, background checks, and more. We have a local team of lawyers and on-the ground experts that understand compliance as you expand abroad.
As your employer-of-record/entity in Portugal, Via assumes responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
With Via’s transparent pricing, you can pay full-time employees or contractors in Portugal with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.
